March 28 (Bloomberg) -- Spanish and Italian bonds rose as
Cypriot banks opened for the first time in almost two weeks with
few signs of any capital flight after an international bailout.

German 10-year bund yields climbed from the lowest in
almost eight months as the developments in Cyprus reduced demand
for the region’s safest assets. The Cypriot Finance Ministry
said controls on bank withdrawals and overseas transfers will be
in force for seven days. Italian, Spanish and Portuguese bonds
fell this week after the terms of financial support for the
Mediterranean island nation included losses on some bondholders
and depositors.

“In the sense that we haven’t been seeing shocking
headlines on a bank run, Cyprus seems to be a bit more orderly
than people had feared,” said Michael Leister, an interest-rate
strategist at Commerzbank AG in London. “There’s some profit
taking from investors who got the moves this week right. Bunds
are still near multi-month lows so there’s still quite a lot of
nervousness out there.”

Spain’s 10-year yield fell two basis points, or 0.02
percentage point, to 5.06 percent at 5 p.m. London time. The 5.4
percent bond due in January 2023 gained 0.13, or 1.30 euros per
1,000-euro ($1,282) face amount, to 102.565. The yield has
climbed 21 basis points this week.

Cypriot Banks

Banks in Cyprus opened at midday local time. The central
bank’s money controls include a 300-euro daily limit on
withdrawals and restrictions on transfers.

“We expected much more people,” said Argyros Eraclides,
manager of a Bank of Cyprus branch in the Stavrou area of
Nicosia. “Fortunately there are only some people who needed
cash for the day but customers reacted fantastically. We
expected some people to be more aggravated.”

Germany’s 10-year yield rose two basis points to 1.29
percent after declining to 1.25 percent, the lowest level since
Aug. 3. The number of people out of work in Germany rose a
seasonally adjusted 13,000 to 2.94 million, the Federal Labor
Agency said. Economists surveyed by Bloomberg predicted a
decline of 2,000.

“The way EU officials approached the crisis in Cyprus is
having spillover to other peripheral countries,” said
Alessandro Giansanti, a senior rates strategist at ING Groep NV
in Amsterdam. “It becomes now highly likely that in every
future bailout there will be a private-sector involvement.

Volatility on Finnish bonds was the highest in euro-area
markets today followed by those of Belgium and Ireland,
according to measures of 10-year debt, the yield spread between
two- and 10-year securities, and credit-default swaps.

Finland plans to sell a new benchmark bond in the first
half of the year, most likely in April, the Treasury in Helsinki
said in an e-mailed report today.

German bunds returned 0.5 percent this year through
yesterday, according to indexes compiled by Bloomberg and the
European Federation of Financial Analysts Societies. Italy’s
bonds declined 0.3 percent and Spain’s gained 2.9 percent.